Sections 167-169 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 167 lets the Board make safe harbour rules for transfer prices and for income deemed to accrue under section 9(2). Section 168 lets the Board, with Central Government approval, enter into an advance pricing agreement that fixes the arm's length price or income in advance. Section 169 gives effect to such an agreement through a modified return and extends the time for assessment. This article reads them as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
Safe harbour (section 167) means circumstances in which the income-tax authorities shall accept the transfer price or income declared by the assessee. An advance pricing agreement (section 168) can run for up to five consecutive tax years and can also cover up to four tax years preceding the first year. A modified return (section 169) is due within three months from the end of the month in which the agreement is entered into.
Scope and the amendment by the Finance Act, 2026
These sections are in Chapter X. Section 169(1) was substituted by section 54 of the Finance Act, 2026, with effect from 1 April 2026. The Act came into force on the 1st April, 2026 (section 1(3)). The detailed rules, scheme and forms are left to the Income-tax Rules, 2026 and to what the Board prescribes; later amendments and notifications should be checked.
The price on which these sections operate is determined under section 165 and section 166. For the Chapter overview, see Chapter X of the Income-tax Act, 2025. If you are considering an agreement, our tax planning advisory team can help you assess it.
Section 167: safe harbour rules
- Section 167(1). The determination of (a) income referred to in section 9(2), or (b) arm's length price under section 165 or 166, is subject to safe harbour rules.
- Section 167(2). For this purpose, the Board may make rules for safe harbour.
- Section 167(3). "Safe harbour" means circumstances in which the income-tax authorities shall accept (a) the transfer price, or (b) the income deemed to accrue or arise under section 9(2), declared by the assessee.
The circumstances themselves are not in the Act; they are for the Board's rules. What has been prescribed is not in the text consulted, and this article states none of it.
Section 168: advance pricing agreement
Section 168(1) and (2): what an agreement does
The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining:
- (a) the arm's length price, or specifying the manner in which it is to be determined, in relation to an international transaction to be entered into by that person; or
- (b) the income referred to in section 9(2), or the manner in which it is to be determined, as is reasonably attributable to the operations carried out in India by or on behalf of that person, being a non-resident.
The manner of determination may include (a) the methods referred to in section 165(1), or (b) the methods provided by rules made under the Act, with such adjustments or variations as may be necessary or expedient.
Section 168(3): the agreement prevails
Irrespective of anything in section 165 or 166, or in the methods provided by the rules, the arm's length price of any international transaction, or the income referred to in sub-section (1)(b), covered by the agreement is determined as per the agreement.
Section 168(4) to (6): validity and binding effect
| Sub-section | Rule |
|---|---|
| (4) | The agreement is valid for such period, not exceeding five consecutive tax years, as specified in it |
| (5) | It binds (a) the person, and the transaction, in respect of which it was entered into; and (b) the Principal Commissioner or Commissioner and the income-tax authorities subordinate to him, in respect of that person and transaction |
| (6) | It is not binding if there is a change in law or facts having bearing on the agreement |
Section 168(7) and (8): void ab initio
The Board, with the approval of the Central Government, may by order declare an agreement void ab initio if it finds that it has been obtained by fraud or misrepresentation of facts. On such a declaration, (a) all provisions of the Act apply to the person as if the agreement had never been entered into, and (b) the period from the date of the agreement to the date of the order is excluded in computing any period of limitation under the Act; and if after that exclusion the remaining period is less than sixty days, it is extended to sixty days and deemed to be extended accordingly.
Section 168(9): the four preceding tax years
Subject to such conditions, procedure and manner as may be prescribed, the agreement may also provide for determining the arm's length price, or the manner of its determination, for the international transaction entered into by the person, and the income of the non-resident, during any period not exceeding four tax years preceding the first of the tax years referred to in sub-section (4). The price or income for those years is then determined in accordance with the agreement.
Section 168(10) and (11): pending proceedings and the scheme
Where a person applies to enter into an agreement, the proceedings are deemed to be pending in that person's case for the purposes of the Act until the agreement is entered into, or the proceedings are closed as may be prescribed (sub-section (10)). The Board may prescribe a scheme specifying the manner, form, procedure and any other matter relating to the agreement (sub-section (11)).
Section 169: effect to an advance pricing agreement
Section 169(1): modified return
Section 169(1), as substituted by the Finance Act, 2026, says that irrespective of anything to the contrary in section 263, where income is modified as a result of an advance pricing agreement entered into with any person, that person shall, or any other person being an associated enterprise may:
- (a) furnish a return or a modified return in accordance with and limited to the agreement; and
- (b) do so within three months from the end of the month in which the agreement was entered into,
where the tax years relevant for the return or modified return are the years covered by the agreement.
Section 169(2) and (3): how the return is treated
Except as provided, all other provisions of the Act apply as if the modified return were a return furnished under section 263. Where a modified return is furnished and assessment or reassessment proceedings for a tax year to which the agreement applies were initiated before it was filed, then (a) if the proceedings were completed before the filing, the Assessing Officer passes an order modifying the total income of the relevant tax year; or (b) if they are pending on the date of filing, he proceeds to complete them as per the agreement, after taking the modified return into consideration.
Section 169(4) and (5): time limits and definitions
Irrespective of sections 275, 286 and 296:
- (a) the order in a case under sub-section (3)(a) shall be passed within one year from the end of the financial year in which the modified return is furnished; and
- (b) in a case under sub-section (3)(b), the period of limitation under section 275, 286 or 296 for completing the pending assessment or reassessment is extended by twelve months.
For this section, "agreement" means an agreement referred to in section 168(1), and assessment or reassessment proceedings for a tax year are deemed completed where (i) an assessment or reassessment order has been passed, or (ii) no notice has been issued under section 270(8) till the expiry of the limitation period under that section. See our post on section 270 (assessment).
A printing note: in section 168(3) the copy has a stray "71" after "166" ("section 165 or 16671"); it is not part of the text.
A worked example
Names and dates are invented; the periods are those printed in the sections.
Banyan Software Private Limited, resident in India, and the Board enter into an advance pricing agreement for the supply of services to its overseas associated enterprise. The agreement is valid for four consecutive tax years (within the five permitted). Under sub-section (9) it also provides, subject to the prescribed conditions, for the price to apply to the two tax years immediately before the first agreement year (within the four preceding years permitted).
- The agreement is entered into in June. Any return or modified return for the years covered must be furnished within three months from the end of June, that is by the end of September (section 169(1)(b)).
- If the assessment for one covered year was already complete, the Assessing Officer passes an order modifying total income within one year from the end of the financial year in which the modified return is furnished.
- If the assessment for another covered year is still pending, the limitation period is extended by twelve months.
Need help with an advance pricing agreement?
An agreement fixes the price in advance but is conditional on facts staying the same. Our tax planning advisory service can help assess whether an agreement or the safe harbour suits your transactions.
Key takeaways
- Safe harbour is a set of circumstances in which the authorities accept the declared transfer price or section 9(2) income; the circumstances are left to the Board's rules.
- An advance pricing agreement can be valid for up to five consecutive tax years and can look back up to four tax years.
- It binds the person, the transaction and the tax authorities, but not if law or facts change.
- A fraud or misrepresentation can make it void ab initio.
- The modified return is due within three months from the end of the month in which the agreement is entered into.
Read next
- Section 166: reference to the Transfer Pricing Officer
- Section 170: secondary adjustment in transfer pricing
- Section 270: assessment
- Chapter X of the Income-tax Act, 2025
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.